The Economic and Social Costs of Reactor Disaster – Lessons from Chernobyl for Japan

Chernobyl and Fukushima: Ukraine’s Lessons for Japan
The Fiscal Times Staff
Thursday, March 17, 2011

Pripyat, UKRAINE – Driving the bleak road from Chernobyl’s exclusion zone back to Kiev 25 years after that nuclear disaster, it struck me that this tragedy must have had a double impact on the people who lived here. First was the threat of radiation, which resulted in thousands of cases of thyroid cancer and untold psychological ailments. Second was the economic fallout, which is harder to measure. Because Japan is more enmeshed in the world economy than Ukraine was circa 1986, economists are already pondering what the costs of the Fukushima Daiichi nuclear fallout will be. There may be important lessons from the Chernobyl case, which remains the world’s worst nuclear disaster.

Chernobyl cost the Soviet Union hundreds of billions of dollars. Belarus – the country just north of the plant’s exclusion zone that bore the brunt of the radiation – devoted nearly a quarter of its budget to treating Chernobyl victims in the early 1990s. There were capital-intensive resettlement programs, as hundreds of thousands had to be screened for radiation, resettled, and given new housing and expanded health care benefits to treat newfound ailments (and also to be bribed into silence). Finally, the authorities had to seal off the reactor. Twenty-five years after the meltdown, Ukraine is building the world’s largest movable structure at a cost of $1.2 billion to replace the current sarcophagus of steel and concrete, which is aging and rumored to be riddled with leaks (the government has called for a conference this April to find outside funding).

So what lessons can be learned for Japan? The Fukushima disaster is not on the same magnitude as Chernobyl, which spewed radiation some 10,000 times higher than what has been recorded near the reactor in Japan. Chernobyl lacked a containment structure, and the Soviets’ bureaucratic dithering to tell locals to flee the area cost lives and money.

Harder to measure is the so-called “paralyzing fatalism” that gripped Ukraine after the tragedy, and how a comparable shock might similarly hinder Japan as it attempts to rebuild and affect investor confidence. Like Ukraine in 1986, there are food and energy shortages as well as large numbers of displaced persons. To stave off a fiscal crisis in Japan, the government is launching a massive rescue and reconstruction effort. Some have speculated this might stimulate Japan’s moribund economy, much the same way a war tends to stimulate economies and unleash untapped dynamism. The surge of rebuilding may also reverse the deflation that hurt Japan’s pre-earthquake economy. That said, were global markets to get jittery and rating agencies to downgrade Japan’s sovereign debt, this could trigger a potential debt crisis and lead to a downward economic spiral. The trouble, like the Soviets’ attempts to unbury themselves from the Chernobyl disaster, is that we still do not know the extent of the damage. And if there is one thing that global markets don’t like, it is uncertainty.

Twenty-five years after the Chernobyl meltdown, Ukraine’s economy is arguably still recovering. Let’s hope Japan fares better as it rebuilds and puts this disaster behind it.